-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CfOpyXOhYuHxFg/WAvV8JpRmmGPQlw+rkyjNFOijV7H/897rHQcmGpfNhVqbrOmc CaUPV/RlbeZ1Q6Jdp6h+VA== 0001047469-97-004689.txt : 19971117 0001047469-97-004689.hdr.sgml : 19971117 ACCESSION NUMBER: 0001047469-97-004689 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME FUND I-B CENTRAL INDEX KEY: 0000868678 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043106525 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-35148 FILM NUMBER: 97718400 BUSINESS ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________ TO _______________________ ____________________ FOR QUARTER ENDED SEPTEMBER 30, 1997________________COMMISSION FILE NO. 33-35148 >Caption American Income Fund I-B, a Massachusetts Limited Partnership - -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3106525 - --------------------------------------------- -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 88 Broad Street, Boston, MA 02110 - --------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800 ------------------- - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No --- --- AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP FORM 10-Q INDEX
PAGE --------- Page PART I.FINANCIAL INFORMATION: Item 1.Financial Statements Statement of Financial Position at September 30, 1997 and December 31, 1996..................... 3 Statement of Operations for the three and nine months ended September 30, 1997 and 1996................................ 4 Statement of Cash Flows for the nine months ended September 30, 1997 and 1996......................... 5 Notes to the Financial Statements.................................. 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 10-13 PART II.OTHER INFORMATION: Items 1-6............................................................. 14
2 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF FINANCIAL POSITION September 30, 1997 and December 31, 1996 (Unaudited)
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- ------------ ASSETS Cash and cash equivalents....................... $ 1,453,832 $1,938,967 Rents receivable................................ 5,132 1,509 Accounts receivable--affiliate.................. 45,135 38,647 Equipment at cost, net of accumulated depreciation of $3,262,638 and $3,460,675 at September 30, 1997 and December 31, 1996, respectively................................. 1,338,417 1,597,440 -------------- ------------ Total assets................................ $ 2,842,516 $3,576,563 -------------- ------------ -------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Notes payable................................... $ 113,044 $ 726,096 Accrued interest................................ 953 3,883 Accrued liabilities............................. 22,500 22,750 Accrued liabilities--affiliate.................. 7,534 20,448 Deferred rental income.......................... 5,300 26,165 Cash distributions payable to partners.......... 75,451 75,451 -------------- ------------ Total liabilities........................... 224,782 874,793 -------------- ------------ -------------- ------------ Partners' capital (deficit): General Partner................................ (186,484) (182,282) Limited Partnership Interests (286,711 Units; initial purchase price of $25 each).......... 2,804,218 2,884,052 -------------- ------------ Total partners' capital.................... 2,617,734 2,701,770 -------------- ------------ Total liabilities and partners' capital.... $2,842,516 $3,576,563 -------------- ------------ -------------- ------------
The accompanying notes are an integral part of these financial statements. 3 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF OPERATIONS for the three and nine months ended September 30, 1996 (Unaudited)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Income: Lease revenue................................................. $ 158,166 $ 240,493 $ 454,451 $ 618,763 Interest income............................................... 19,952 22,480 61,319 59,440 Gain on sale of equipment..................................... 80,000 69,011 115,379 560,651 ---------- ---------- ---------- ---------- Total income................................................ 258,118 331,984 631,149 1,238,854 ---------- ---------- ---------- ---------- Expenses: Depreciation and amortization................................. 105,526 111,772 326,416 508,767 Interest expense.............................................. 8,306 17,691 37,516 53,691 Equipment management fees--affiliate........................... 6,843 10,336 19,608 27,911 Operating expenses--affiliate................................. 48,953 20,325 105,292 47,413 ---------- ---------- ---------- ---------- Total expenses.............................................. 169,628 160,124 488,832 637,782 ---------- ---------- ---------- ---------- Net income...................................................... $ 88,490 $ 171,860 $ 142,317 $ 601,072 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per limited partnership unit......................... $ 0.29 $ 0.57 $ 0.47 $ 1.99 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash distributions declared per limited partnership unit........ $ 0.25 $ 0.38 $ 0.75 $ 1.13 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996 ------------ ------------ Cash flows from (used in) operating activities: Net income......................................... $ 142,317 $ 601,072 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization.................... 326,416 508,767 Gain on sale of equipment........................ (115,379) (560,651) Changes in assets and liabilities Decrease (increase) in: rents receivable............................... (3,623) 278,513 accounts receivable--affiliate................. (6,488) 536,898 Increase (decrease) in: accrued interest............................... (2,930) (21,456) accrued liabilities............................ (250) (49,860) accrued liabilities--affiliate................. (12,914) (2,028) deferred rental income......................... (20,865) 21,236 ------------ ------------ Net cash from operating activities........... 306,284 1,312,491 ------------ ------------ Cash flows from (used in) investing activities: Purchase of equipment............................ (75,957) -- Proceeds from equipment sales.................... 123,943 652,222 ------------ ------------ Net cash from investing activities........... 47,986 652,222 ------------ ------------ Cash flows used in financing activities: Principal payments--notes payable................ (613,052) (569,261) Distributions paid............................... (226,353) (339,528) ------------ ------------ Net cash used in financing activities.......... (839,405) (908,789) ------------ ------------ Net increase (decrease) in cash and cash equivalents..................................... (485,135) 1,055,924 Cash and cash equivalents at beginning of period... 1,938,967 839,087 ------------ ------------ Cash and cash equivalents at end of period......... $ 1,453,832 $ 1,895,011 ------------ ------------ ------------ ------------ Supplemental disclosure of cash flow information: Cash paid during the period for interest......... $ 40,446 $ 75,147 ------------ ------------ ------------ ------------
Supplemental disclosure of non-cash investing and financing activities: See Note 4 to the Financial Statements The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership Notes to the Financial Statements September 30, 1997 and December 31, 1996 (Unaudited) NOTE 1--BASIS OF PRESENTATION - ----------------------------- The financial statements presented herein are prepared in conformity with generally accepted accounting principles and the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 1996 Annual Report. Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 1996 Annual Report. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position at September 30, 1997 and December 31, 1996 and results of operations for the three and nine month periods ended September 30, 1997 and 1996 have been made and are reflected. NOTE 2--CASH - ------------ At September 30, 1997, the Partnership had $1,345,000 invested in reverse repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities. NOTE 3--REVENUE RECOGNITION - --------------------------- Rents are payable to the Partnership monthly or quarterly and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. Future minimum rents of $742,335 are due as follows:
For the year ending September 30, 1998 ------------------- 1998..................... $ 298,192 1999..................... 185,182 2000..................... 135,005 2001..................... 97,351 2002..................... 21,284 Thereafter............... 5,321 --------- Total.................. $ 742,335 --------- ---------
NOTE 4--EQUIPMENT - ----------------- The following is a summary of equipment owned by the Partnership at September 30, 1997. In the opinion of Equis Financial Group Limited Partnership ("EFG"), the acquisition cost of the equipment did not exceed its fair market value. 6 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued)
REMAINING LEASE TERM EQUIPMENT EQUIPMENT TYPE (MONTHS) AT COST - -------------- ------------- ------------- Aircraft...................................... 5 $ 2,641,262 Materials handling............................ 0-29 688,078 Trailers/intermodal containers................ 0-63 620,259 Research & test............................... 3-28 508,837 Communications................................ 0 102,953 Construction & mining......................... 6 39,666 ------------- Total equipment cost.................... 4,601,055 Accumulated depreciation................ (3,262,638) ------------- Equipment, net of accumulated depreciation........................ $1,338,417 ------------- -------------
At September 30, 1997, the Partnership's equipment portfolio included equipment having a proportionate original cost of $2,792,790, representing approximately 61% of total equipment cost. At September 30, 1997, the Partnership was not holding any equipment not subject to a lease and no equipment was held for sale or re-lease. The summary above includes equipment being leased on a month-to-month basis. During July 1996, the Partnership transferred its ownership interest in certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad, to a third party for cash consideration of $85,957. The trailers had a net book value of $32,494 at the time of transfer, resulting in a net gain of $53,463. In September 1996, the Partnership replaced these trailers with comparable trailers and leased such to new lessee. The transaction was accounted for as a like-kind exchange for income tax reporting purposes. The cost of the new trailers, $385,063, was reduced by $41,241, representing the proportionate amount of gain deferred on the original trailers. The Partnership funded this transaction with $66,307 of cash consideration and long-term financing of $359,997. The unused consideration of $19,650 was recognized as proceeds from equipment sales. The associated deferred gain of $12,222 was recognized as Gain on Sale of Equipment on the Statement of Operations for the three months ended September 30, 1996. NOTE 5--RELATED PARTY TRANSACTIONS - ---------------------------------- All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the nine month periods ended September 30, 1997 and 1996 which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows: 7 AMERICAN INCOME FUND 1-B a Massachusetts Limited Partnership Notes to the Financial Statements (Continued)
1997 1996 ---------- --------- Equipment management fees............................ $ 19,608 $ 27,911 Administrative charges.............................. 39,342 10,629 Reimbursable operating expenses due to third parties. 65,950 36,784 ---------- --------- Total.............................................. $ 124,900 $ 75,324 ---------- --------- ---------- ---------
All rents and proceeds from the sale of equipment are paid directly to either EFG or to a lender. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At September 30, 1997, the Partnership was owed $45,135 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in October 1997. NOTE 6--NOTES PAYABLE Notes payable at September 30, 1997 consisted of two installment notes of $113,044 payable to an institutional lender. The installment notes are non-recourse, both with interest rates of 10.12%. The installment notes are collateralized by the equipment and assignment of the related lease payments and will be fully amortized by noncancellable rents or the Partnership's available cash in the year ending September 30, 1998. The carrying value of the notes approximates face value at September 30, 1997. NOTE 7--LEGAL PROCEEDINGS On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored investment programs, filed an action in the Commonwealth of Massachusetts Superior Court Department of the Trial Court in and for the County of Suffolk, for damages and declaratory relief against a lessee of the Partnership, National Steel Corporation ("National Steel"), under a certain Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by National Steel of certain sales and/or use taxes paid to the State of Illinois and other remedies provided by the MLA. On August 30, 1995, National Steel filed a Notice of Removal which removed the case to the United States District Court, District of Massachusetts. On September 7, 1995, National Steel filed its Answer to EFG's Complaint along with Affirmative Defenses and Counterclaims, seeking declaratory relief and specific performance and alleging, among other things, breach of contract and breach of the implied covenant of good faith and fair dealing. EFG filed its Answer to these counterclaims on September 29, 1995. Though the parties have been discussing settlement with respect to this matter for some time, to date, the negotiations have been unsuccessful. Notwithstanding these discussions, EFG recently filed an Amended and Supplemental Complaint alleging a further default by National Steel under the MLA and EFG recently filed a motion for Summary Judgment on all claims and counterclaims. The matter remains pending before the Court and is scheduled for a hearing on EFG's motion in December 1997. The Partnership has not experienced any material losses as a result of this action. 8 AMERICAN INCOME FUND 1-B a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) NOTE 7--LEGAL PROCEEDINGS (Continued) On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited partner units or beneficiary interests in eight investment programs sponsored by EFG filed a lawsuit, as a derivative action, on behalf of the Partnership and 27 other investment programs (collectively, the "Nominal Defendants") in the Superior Court of the Commonwealth of Massachusetts for the County of Suffolk against EFG and certain of EFG's affiliates, including the General Partner of the Partnership and four other wholly-owned subsidiaries of EFG which are general partner or managing trustee of one or more of the investment programs, (collectively, the "Managing Defendants"), and certain other entities and individuals that have control of the Managing Defendants and the Nominal Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of breach of fiduciary duty, breach of contract, unjust enrichment, and equitable relief and seek various remedies, including compensatory and punitive damages to be determined at trial. The General Partner and EFG are in the early stages of evaluating the nature and extent of the claims asserted in this lawsuit and cannot predict its outcome with any degree of certainty. However, based upon all of the facts presently being considered by management, the General Partner and EFG do not believe that any likely outcome will have a material adverse effect on the Partnership. The General Partner, EFG and their affiliates intend to vigorously defend against the lawsuit. 9 AMERICAN INCOME FUND 1-B, a Massachusetts Limited Partnership FORM 10-Q PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements in this quarterly report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the ability of EFG to collect all rents due under the attendant lease agreements and successfully remarket the Partnership's equipment upon the expiration of such leases. THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 OVERVIEW The Partnership was organized in 1990 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership's stated investment objectives and policies contemplated that the Partnership would wind-up its operations within approximately seven years of its inception. The value of the Partnership's equipment portfolio decreases over time due to depreciation resulting from age and usage of the equipment, as well as technological changes and other market factors. In addition, the Partnership does not replace equipment as it is sold; therefore, its aggregate investment value in equipment declines from asset disposals occurring in the normal course of business. As a result of the Partnership's age and a declining equipment portfolio, the General Partner is evaluating a variety of transactions that will reduce the Partnership's prospective costs to operate as a publicly registered limited partnership and, therefore, enhance overall cash distributions to the limited partners. Such a transaction may involve the sale of the Partnership's remaining equipment or a transaction that would allow for the consolidation of the Partnership's expenses with other similarly-organized equipment leasing programs. In order to increase the marketability of the Partnership's remaining equipment, the General Partner expects to use the Partnership's available cash to retire indebtedness. This will negatively effect short-term cash distributions. RESULTS OF OPERATIONS For the three and nine months ended September 30, 1997, the Partnership recognized lease revenue of $158,166 and $454,451, respectively, compared to $240,493 and $618,763 for the same periods in 1996. The decrease in lease revenue from 1996 to 1997 was expected and resulted principally from lease term expirations and the sale of equipment. The Partnership also earns interest income from temporary investments of rental receipts and equipment sales proceeds in short-term instruments. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by EFG or an affiliated equipment leasing program sponsored by EFG. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. 10 AMERICAN INCOME FUND 1-B, a Massachusetts Limited Partnership FORM 10-Q PART 1. FINANCIAL INFORMATION For the three months ended September 30, 1997, the Partnership sold fully depreciated equipment to existing lessees and third parties resulting in a net gain, for financial statement purposes, of $80,000. For the nine months ended September 30, 1997, the Partnership sold equipment having a net book value of $8,564 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $115,379. For the three and nine months ended September 30, 1996, the Partnership sold equipment having a net book value of $17,336 and $84,143, respectively, to existing lessees and third parties. These sales resulted in net gains for financial statement purposes of $56,789 and $548,429, respectively. During July 1996, the Partnership transferred its ownership interest in certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad, to a third party for cash consideration of $85,957. The trailers had a net book value of $32,494 at the time of transfer, resulting in a net gain of $53,463. In September 1996, the Partnership replaced these trailers with comparable trailers and leased such to a new lessee. The transaction was accounted for as a like-kind exchange for income tax reporting purposes. The cost of the new trailers, $385,063, was reduced by $41,241, representing the proportionate amount of gain deferred on the original trailers. The Partnership funded this transaction with $66,307 of cash consideration and long-term financing of $359,997. The unused consideration of $19,650 was recognized as proceeds from equipment sales. The associated deferred gain of $12,222 was recognized as Gain on Sale of Equipment on the Statement of Operations for the three months ended September 30, 1996. It cannot be determined whether future sales of equipment will result in a net gain or a net loss to the Partnership, as such transactions will be dependent upon the condition and type of equipment being sold and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. EFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. The total economic value realized upon final disposition of each asset is comprised of all primary lease term revenues generated from that asset, together with its residual value. The latter consists of cash proceeds realized upon the asset's sale in addition to all other cash receipts obtained from renting the asset on a re-lease, renewal or month-to-month basis. The Partnership classifies such residual rental payments as lease revenue. Consequently, the amount of gain or loss reported in the financial statements is not necessarily indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation and amortization expense for the three and nine months ended September 30, 1997 was $105,526 and $326,416, respectively, compared to $111,772 and $508,767 for the same periods in 1996. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. 11 AMERICAN INCOME FUND 1-B, a Massachusetts Limited Partnership FORM 10-Q PART 1. FINANCIAL INFORMATION Interest expense was $8,306 and $37,516 or 5.3% and 8.3% of lease revenue for the three and nine months ended September 30, 1997, respectively, compared to $17,691 and $53,691 or 7.4% and 8.7% of lease revenue for the same periods in 1996. Interest expense in future periods will decline in amount and as a percentage of lease revenue as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. In addition, the General Partner expects to continue to use a portion of the Partnership's available cash to retire indebtedness (see Overview). Management fees were approximately 4.3% of lease revenue for each of the three and nine months ended September 30, 1997, compared to 4.3% and 4.5% of lease revenue for the same periods in 1996. Management fees are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases. Operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. The increase in operating expenses from 1996 to 1997 was due primarily to an increase in administrative charges. The amount of future operating expenses cannot be predicted with certainty; however, such expenses are usually higher during the acquisition and liquidation phases of a partnership. Other fluctuations typically occur in relation to the volume and timing of remarketing activities. LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS The Partnership by its nature is a limited life entity which was established for specific purposes described in the preceding "Overview". As an equipment leasing program, the Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to satisfy debt service obligations associated with leveraged leases, and to pay management fees and operating costs. Operating activities generated net cash inflows of $306,284 for the nine months ended September 30, 1997. For the nine months ended September 30, 1996, operating activities generated net cash inflows of $752,491, after reductions for equipment sales proceeds received of $560,000. Future renewal, re-lease and equipment sale activities will cause a decline in the Partnership's lease revenues and corresponding sources of operating cash. Overall, expenses associated with rental activities, such as management fees, and net cash flow from operating activities will also decline as the Partnership experiences a higher frequency of remarketing events. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third-party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash expended for equipment acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During the nine months ended September 30, 1997, the Partnership expended $75,957 to upgrade certain research and test equipment. There were no equipment acquisitions during the same period in 1996. For the nine months ended September 30, 1997, the Partnership realized $123,943 in equipment sale proceeds compared to $652,222 for the same period in 1996. 12 AMERICAN INCOME FUND 1-B, a Massachusetts Limited Partnership FORM 10-Q PART 1. FINANCIAL INFORMATION Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. The Partnership obtained long-term financing in connection with certain equipment leases. The repayments of principal related to such indebtedness are reported as a component of financing activities. Each note payable is recourse only to the specific equipment financed and to the minimum rental payments contracted to be received during the debt amortization period (which period generally coincides with the lease rental term). As rental payments are collected, a portion or all of the rental payment is used to repay the associated indebtedness. In future periods, the amount of cash used to repay debt obligations is scheduled to decline as the principal balance of notes payable is reduced through the collection and application of rents. The Partnership's indebtedness is expected to be fully amortized during the year ended September 30, 1998 utilizing such rents and the Partnership's available cash (see Overview). Cash distributions to the General and Limited Partners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the nine months ended September 30, 1997, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $226,353. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Limited Partners were allocated 95% of these distributions, or $215,035 and the General Partner was allocated 5%, or $11,318. The third quarter 1997 cash distribution was paid on October 14, 1997. Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. Future market conditions, technological changes, the ability of EFG to manage and remarket the assets, and many other events and circumstances, could enhance or detract from individual asset yields and the collective performance of the Partnership's equipment portfolio. The future liquidity of the Partnership will be influenced by the foregoing and will be greatly dependent upon the collection of contractual rents and the outcome of residual activities. The General Partner anticipates that cash proceeds resulting from these sources will satisfy the Partnership's future expense obligations. However, the amount of cash available for distribution in future periods will fluctuate. Equipment lease expirations and asset disposals will cause the Partnership's net cash from operating activities to diminish over time; and equipment sale proceeds will vary in amount and period of realization. In addition, the Partnership may be required to incur asset refurbishment or upgrade costs in connection with future remarketing activities. Accordingly, fluctuations in the level of quarterly cash distributions will occur during the life of the Partnership. 13 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: Refer to Note 7 to the financial statements herein. Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits Response: None Item 6(b). Reports on Form 8-K Response: None
14 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership By: AFG Leasing VI Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: Michael J. Butterfield --------------------------------------- Treasurer of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: November 14, 1997 ---------------------------------------- By: Gary M. Romano ---------------------------------------- Clerk of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: November 14, 1997 ---------------------------------------- 15 EX-27 2 EXHIBIT 27
5 9-MOS DEC-31-1996 JAN-01-1997 SEP-30-1997 1,453,832 0 50,267 0 0 1,504,099 4,601,055 3,262,638 2,842,516 111,738 113,044 0 0 0 2,617,734 2,842,516 0 631,149 0 0 451,316 0 37,516 142,317 0 142,317 0 0 0 142,317 0 0
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